In the face of sharply lower oil prices and geopolitical tensions and sanctions, economic activity in Russia decelerated in late 2014, resulting in negative spillovers on Commonwealth of Independent States (CIS) and, to a lesser extent, on Baltic countries. The spillovers to eastern Europe have been limited. The degree of impact is commensurate with the level of these countries' trade, remittances, and foreign direct investment (FDI) links with Russia. So far, policy action by the affected countries has focused on mitigating the immediate consequences of spillovers.

This report presents research by IMF staff on issues of policy interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Acknowledgments

This paper was prepared by Ara Stepanyan and Agustin Roitman (EUR) and Gohar Minasyan, Dragana Ostojic, and Natan Epstein (MCD). We are grateful to the support from Gilda Ordonez-Baric, Xuan Tu (EUR), and Soledad Feal-Zubimendi (MCD).